Bill in Congress would make bad situation worse

As the 2009 hurricane season enters its early weeks, Alabama
residents need to check their windows, stock up on
non-perishable food and make sure they have working
battery-powered radios.

After all, major storms have made landfall in the state, on
average, about once a decade; and a year rarely passes
without heavy rainfall, rip tides or high winds that spin
off from a hurricane that hits somewhere else.

For example, last year's Hurricane Fay never made a
direct hit on Alabama, but rain, high tides and
thunderstorms still caused millions of dollars in damage in
the state.

Unfortunately, the Legislature went home earlier this year
having done little to change Ala-

bama's insurance system or relieve residents from
rising coastal insurance rates. And now, legislation pending
in Congress could have major consequences for coastal
Alabama homeowners.

In particular, some members of Congress want to change the
tax law in a way that would drive already expensive coastal
Alabama insurance premiums even higher.

The proposed changes would affect the tax treatment of
something called "offshore affiliated
reinsurance." Although the name of the product alone is
enough to make many people's eyes glaze over, such
reinsurance matters a lot in every Gulf Coast state.

Explaining why requires some background. To begin with, all
sizeable primary insurers — companies like Allstate, ALFA
and Nationwide that sell directly to consumers — buy
insurance of their own to cover their expenses after major
catastrophes and diversify their risks.

Particularly in high-hurricane-risk areas, many companies
buy some or all of this reinsurance from a parent or sister
company that they know will continue to write coverage
following a big loss.

A lot of this coverage comes from companies that have
headquarters outside of the United States. This global
risk-management is a good thing for everyone.

Insurance prices, in general, fall when insurers manage risks across a broader pool of similar risks unlikely to happen at the same time; and international pools make it easier to group such risks together....